2020 PLP 1128 (CLC)

ZAFAR AHMED RAJPUT, J.

By this order, I intend to dispose of C.M.A. No. 15149 of 2018, filed by the plaintiffs under Order XXXIX, Rules 1 and 2 read with Sections 94(e) and 151, C.P.C., seeking interim injunctive order restraining the defendant No.1 from sending encashment notice to defendant No.2 and /or defendant No.3 in relation to the guarantees, and/or restraining the defendants from encashment of the guarantee till pendency of the proceedings.

2. Briefly stated, the facts of the case are that the plaintiff i.e. Oasis Travels (Private) Limited has filed this suit for declaration, injunction and damages claiming therein that it is entitled to commission to value of USD 92,380/- and the amount payable by the plaintiff to the defendant No.1 i.e. Donvand Limited Trading as Gullivers Travel Associates is USD 82,345/-. It is alleged that the plaintiff entered into an agreement with the defendant No.1 for the purpose of delivery of travel services to 'customers in Pakistan and submitted a performance guarantee to the value of GBP 100,000/- in favour of the defendant No.1, issued by the defendant No. 3 (Standard Chartered Bank Dubai); that as per the agreement, the plaintiff being an agent sold out the products through online system to various customers and remitted the amount on month to month basis to defendant No.1 and in furtherance of the said agreement the plaintiff generated yearly sale reports for the years 2011 to 2016 to the various value and submitted the same to defendant No.1 adjusting the amounts of commission against pending invoices; that in the year 2017 the defendant No.1 introduced a revised commission formula for the agents in terms of letter, dated 17.06.2017, and asked the plaintiff to sign a license agreement for the purpose of accessing global travel contents and purchasing hotels, airline tickets as well as other travel services; as such, the plaintiff entered into GTA API License Agreement, dated 01.06.2017, and it was thereafter in the year 2017 the plaintiff generated a sale report to the value of USD 3.1 million and the total commission due to the plaintiff came to USD 92,380/- but the defendant No. 1 withheld the commission; hence, the plaintiff sought adjustment of the same as far back as February, 2018 on the defendant No. 1 through its e-mail, dated 22.08.2018, informed the plaintiff that it was waiting for plaintiff updates regarding the payment and then the plaintiff sent e-mails, dated 18.09.2018 and 02.10.2018, underlining a possible timeline under which payments could be rendered; however, the said proposal of the plaintiff was not accepted; that the total amount payable to defendant No. 1 comes to USD 82,345/- whereas defendant No. 1 is liable to pay the plaintiff commission to the value of USD 92,380/-; that now the defendant No.1 is in the process of sending an encashment notice of performance guarantee to the defendants Nos. 2 and 3, which shall result in damage to the plaintiff's reputation in business circle and its ability to obtain credit lines in the further; hence, the cause of action accrued to plaintiff to file the suit.

3. Learned Counsel for the plaintiff has contended that the defendant No. 1 did not issue any invoice or consolidated statement to the plaintiff for the year 2017-18 and it was discovered from the verification of the plaintiff's own accounts that it owed only an amount of USD 82,345/- to the defendant No.1 and as such, upon adjustment of dues, it was defendant No.1 who owed money to the plaintiff not vice versa and despite having informed the defendant No.1 vide letter, dated 19.10.2018, the defendant No.1 illegally sought to encash the performance guarantee that had been executed in their favour by the defendant No.3 to secure payments against invoices. He has further maintained that the encashment of the performance guarantee, whether conditional or unconditional, is an encashment in the nature of a penalty, and hence, unlawful which is liable to be stayed in the light of principle laid down by the Apex Court in the case of Province of West Pakistan v. Messrs Mistri Patel & Co. and another (PLD 1969 SC 80) and in this regards, the learned counsel has also relied on the cases of Messrs Ayaz Builders through Attorney v. Board of Trustees of the Karachi Port Trust and another (2008 CLC 726), Messrs Zeenat Brothers (Pvt.) Ltd. v. Aiwan-e-Iqbal Authority through Chairman, Aiwane Iqbal Complex, Lahore and 3 others (PLD 1996 Karachi 183) and Messrs Jamia Industries Ltd. v. Messrs Pakistan Refinery Ltd., Karachi (PLD 1976 Karachi 644). He has further maintained that even the prevailing law in relation to the encashment of performance guarantee is that performance guarantee is by its very nature separate and distinct from unconstitutional Bank guarantee and; as such, prima facie default is required to be shown prior to the encashment. In this respect learned counsel has relied upon the cases of Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and another (1989 SCMR 379), Ardshir Cowasjee and 10 others v. Karachi Building Control Authority (KMC.), Karachi and 4 others (1999 SCMR 2883), Atlas Cables (Pvt.) Limited v. Islamabad Electric Supply Company Limited and another (2016 CLD 1833), Guangdong Overseas Construction Group Company Ltd. through General Manager v. Creek Marina Private Limited and 2 others (PLD 2011 Karachi 304) and Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and another (1993 CLC 1926). He has added that only those guarantees are unconditional and liable to encashment in which the beneficiary has been adjudged as the "sole judge" and where the demand of the beneficiary has been deemed to be conclusive proof of default, which elements are missing in the instant case. He has also contended that the performance guarantee itself covers only the contract between the parties and in terms thereof, it is merely a security for payment against invoices; as such, any deduction by the defendant No.1 when no amount is due shall be in the nature of a penalty. While referring the case of Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 SC 191), learned counsel has contended that the unconditional bank guarantee could be stayed in case of special equity on the ground of fraud or irretrievable injustice; as such, the instant guarantee is not liable to encashed as the same was executed to secure payments against invoices and in the absence of any payables in regard thereto, the said guarantee could not be encashed; hence, the plaintiff has prima-facie case for seeking injunctive relief, the balance of convenience also lies in its favour as well as prejudice that will be caused to the plaintiff by denial of the relief shall be much greater than any harm or adversity faced by the defendant No.1 and if the instant application is not allowed the plaintiff shall suffer irreparable harm inasmuch as the encashment of the guarantees shall jeopardize the creditworthiness of the plaintiff.

4. Conversely, learned counsel for defendant No. 1 has maintained that the plaintiff is not an agent of the defendant No.1; however, the both independently entered and operated under the contract; that as per Clause 18.3 of the contract, the relationship of the plaintiff with defendant No. 1 in its dealing is as a principal and not as an agent of the defendant No.1; that the payments made by the plaintiff to the defendant No. 1 for the services and products availed by it on credit basis from defendant No. 1 were not dependent on the plaintiff's receiving payments from its clients/customers, which was infact due and payable by the plaintiff within 30 days of the defendants No.1's raising invoices, irrespective of the fact whether the plaintiff received payments from its client/customers or not and the commission under the agreement was only payable to the plaintiff once it had made due payment of the outstanding invoices for the period during which the plaintiff claimed entitlement to the commission; that the defendant No. 1 did not request the defendant No. 3 to issue bank guarantee and it was directly made by the plaintiff to defendant No.3; hence, the defendant No. 1 is not concerned with the issuance of counter guarantee by the defendant No.2 in favour of defendant No.3; that the plaintiff's details of the sales for the years 2011 to 2017 are not relevant to the controversy at hand as the plaintiff defaulted in its payments' obligation from the year 2018 and onwards; that the defendant No.1 did not require the plaintiff to sign a license agreement, which was infact granted to the plaintiff by the defendant No. 1 to us defendant No.1 's proprietary and copy rights software on the plaintiff's own developed website and mobile apps for its customers; that the plaintiff never generated in the year 2018 sales report to the value of USD 3.1 million nor it was entitled to commission of USD 92,380/-, on the contrary, the plaintiff had a balance amount unpaid to the defendant No.1 as he ceased making payments for the services availed for the months of March to June, 2018, which accumulated to USD 246,293/- for which defendant No. 1 raised its invoices and sent reminders to the plaintiff via e-mail but the plaintiff kept evading the said payment and despite the fact that an amount of USD 246,293/- was payable by the plaintiff to defendant No.1, it kept making additional bookings of products and services of defendant No.1's online portal and the defendant No.1 persuading the plaintiff for making payment informed it that it will not be able to utilize the said services and products if it does not clear its outstanding overdue balance amount for the services availed for the months of March to June, 2018 and in this regard to the plaintiff was informed that if the outstanding overdue amount continues to be remained unpaid, the defendant No.1 would have to enforce the security and make an encashment/demand notice on the unconditional bank guarantee issued in its favour by defendant No.3 as security for default made, by the plaintiff for its payment obligations; that the plaintiff has failed to make out any prima facie case for the grant of injunctive order in its favour, who has infact approached this Court with unclean hands and with malafide motive of avoiding its payment obligations of USD 246,293/- as well as depriving the defendant No. 1 of the security of unconditional bank guarantee; that the balance of convenience also does not lie in favour of the plaintiff and it is the defendant, who shall suffer irreparable loss in case injunctive order is passed by this Court.

5. Heard the learned counsel for the parties and perused the material available on record.

6. The guarantee has been defined in Halsbury's Laws of England, Volume

20. Fourth Edition, page 49, page 101 as "a guarantee is an accessory contract whereby the promisor undertakes to be answerable to the promisee for the debt, default or miscarriage of another person whose primary liability to the promise must exist or be contemplated". The "guarantee" as defined indicates that it contains the ingredients of "dedicated commitment", "absolute undertaking", "an unambiguous assurance", unconditional willingness', "definite certainty", "compliance without objections", "scarred obligation" and "defined responsibility". In view of the ingredients as mentioned hereinabove which constitute a guarantee on the basis whereof its binding effect and nature can be well-adjudged, a guarantee once given cannot be avoided, except on the ground of fraud or misrepresentation. It may be added that in the banking system, it is understood that a bank guarantee has a dual aspect. In the case of a bank guarantee, the banker is the promisor. It is a contract between the bank and the beneficiary by a third party. It may not be out of context to mention here that the plaintiff in the instant suit has not raised the plea of fraud; rather admitting the existence of the agreement and execution of guarantee has filed the suit seeking declaration with regard to its entitlement to a commission to the value of USD 92,380/- while claiming its liability towards defendant No.1 as USD 82,345/-.

7. In this case of Shipyard K. Damen International (supra) Honourable Supreme Court of Pakistan has deliberated on the question i.e. whether the performance guarantee can be encashed by the buyer being a Sole Judge to determine and decide whether seller has performed the purchased contract and fulfilled the terms and conditions of the purchase contract and after examining the plethora of law from different jurisdiction has summarised the judicial consensus emerging from the precedents as fellows:- (i) The performance of guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which gives performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier has performed his contract obligation or not, nor with the question whether the supplier is in default or not. The Bank must may according to its guarantee all demand if so stipulates without proof or conditions. Only exception is when there is a clear fraud of which Bank has notice. (ii) There is an absolute obligation upon the banker to comply with the terms and conditions as enumerated in the guarantee and to pay the amount stipulated therein irrespective of any dispute there may be between buyer and seller as to whether goods are up to contract or not. (iii) The bank guarantee should be enforced on its own items and realization against the bank guarantee would not affect or prejudice the case of contract, if ultimately the dispute is referred to arbitration for the reasons, once the terms and conditions of the guarantee were fulfilled, the bank's liability under the guarantee was absolute and it was wholly independent of the dispute proposed to be raised. (iv) The contract of bank guarantee is an independent contract between the bank and the party concerned and is to be worked out independently of the dispute arising out of the work agreement between the parties concerned to such work agreement and, therefore, the extent of the dispute and claims or counter-claims were matters extraneous to be consideration of the question of enforcement of the bank and were to be investigated by the arbitrator. (v) Whether the bank had undertaken to pay the stipulated sum to respondent, at any time, without demur, reservation, recourse, contest or protect, and without any reference to the contractor, no interim injunction restraining payment under the guarantee could be granted. (vi) The Bank guarantee is an autonomous contract and imposes an absolute obligation on the bank to fulfill the terms and the payment on the bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable. (vii) When once bank guarantee is discharged, the obligation of the bank ends and there is no question of going behind such is charged bank guarantee. Courts should refrain from probing into the nature of the transactions between the bank and customer, which led to the furnishing of the bank guarantee. (viii) In the absence of any special equities and the absence of any clear fraud, the bank must pay open demand, if so stipulated and whether the terms are such must be have to found out from the performance guarantee as such. (ix) The unqualified terms of guarantee could not be interfered with by Courts irrespective of the existing of dispute.

8. So far the case in hand is concerned, it has been pleaded by the plaintiff that the subject guarantee is a performance guarantee and the encashment of performance guarantee, whether conditional or unconditional, is an encashment in the nature of a penalty, and hence, unlawful. While as per the defendant No.1, it is a simple guarantee entitling the defendant to encash it on committing default in payment of liabilities by the plaintiff. In order to ascertain the very nature of the guarantee issued by the Standard Chartered Bank, I deem it appropriate to reproduce the same herein under, which is available as annexure "A" at page No. 53 of part "B" of Suit. DEAR SIR, GULLIVER TRAVELS ASSOCIATES SUITE 116, FIRST FLOOR, OUD METHA BUILDING, BUR DUBAI PO BOX 28352, DUBAI SUB:- PERFORMANCE GUARANTEE COVERING CONTRACT GBP 100,000.00 (POUND STERLING ONE HUNDRED THOUSAND ONLY) OASIS TRAVELS (PVT.) LIMITED, KARACHI, PAKISTAN. WHEREAS MESSRS, OASIS TRAVELS (PVT.) LIMITED, 17 HOTEL METROPOLE ABDULLAH HAROON ROAD, KARACHI, PAKISTAN (HEREINAFTER CALLED THE `CONTRACTOR' HAVE REQUESTED US TO ISSUE A BANK GUARANTEE IN YOUR FAVOUR FOR THE SUM OF GBP 100,000.00 (POUND STERLING ONE HUNDRED THOUSAND ONLY) BEING A PERFORMANCE GUARANTEE COVERING CONTRACT (HEREINAFTER REFERRED TO AS THE CONTRACT) FOR TRAVEL RELATED SERVICES. IN CONSIDERATION OF THE AFORESAID, WE STANDARD CHARTERED BANK (HEREINAFTER CALLED 'BANK') AS GUARANTOR UNCONDITIONALLY AND IRREVOCABLY UNDERTAKE TO PAY. ON A RETURN DEMAND PRESENTED AT OUR OFFICES LOCATED AT POB 999, LEVEL 11, STANDARD CHARTERED TOWER DOWNTOWN DUBAI, DUBAI, U.A.E., IRRESPECTIVE OF ANY DISPUTE UNDER THE CONTRACT OR BETWEEN THE PARTIES TO THE CONTRACT, PAYMENT OF BGP 100,000.00 (POUND STERLING ONE HUNDRED THOUSAND ONLY) TO YOU WITHOUT ANY RECOURSE OR REFERENCE TO THE CONTRACTOR. THIS GUARANTEE SHALL REMAIN VALID UP TO 22.11.2018. NOTWITHSTANDING ANYTHING CONTAINED HEREINABOVE THE GUARANTEE IS VALID UNTIL 22.11.2018 AFTER WHICH DATE THE GUARANTEE WILL BECOME NULL AND VOID IRRESPECTIVE OF WHETHER OR NOT THE ORIGINAL GUARANTEE IS RETURNED TO THE BANK FOR CANCELLATION. ANY CLAIM MADE UNDER THIS GUARANTEE MUST BE IN WRITING AND DELIVERED TO THE BANK'S OFFICE AT POB 999, LEVEL 11, STANDARD CHARTERED TOWER, DOWNTOWN, DUBAI, U.A.E., ON OR BEFORE 22.11.2018 (EXPIRY DATE) AFTER WHICH THE BANK WILL NO LONGER BE LIABLE TO MAKE PAYMENT TO YOU. FOR COMPLETION OF OUR RECORDS WE REQUEST YOU TO RETURN THE ORIGINAL GUARANTEE ON ITS EXPIRY OR UPON FULFILLMENT OF THE TERMS OF THE GUARANTEE WHICHEVER MAY FIRST OCCUR. THIS GUARANTEE IS NON-TRANSFERABLE AND NON-ASSIGNABLE. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF UAE AND SUBJECT TO THE JURISDICTION OF UAE COURTS. Emphasis Supplied

9. It is well settled principle of law that in constructing a document, the contents have to be read as a whole. After the recital, the first paragraph is the most relevant to determine the question with regard to nature of the guarantee, which makes it obligatory on the part of bank as guarantor unconditionally and irrevocably undertake to pay, on a written demand irrespective of any dispute under the contract or between the parties to the contract, payment of GBP 100,000.00/- without any recourse or reference to the contractor. It undoubtedly makes the guarantee irrevocable and unconditional. The Court should give effect to 'the covenants of the performance guarantee for the smooth performance of the contract. Since the performance guarantee contains categorical undertaking and imposes absolute obligation on the Bank to pay the amount, irrespective of any dispute, which may arise between the parties regarding the breach of contract, the encashment of bank guarantee cannot be restrained by granting injunctive order.

10. For the foregoing facts and reasons, I am of the considered view that the plaintiff has failed to make out prima facie case for the grant of injunction in its favour. The balance of convenience does not lie in favour of the plaintiff and it is not the plaintiff who is likely to suffer in case the injunction is not granted but the defendant No.1 who will definitely suffer in case the injunction is granted in favour of plaintiff. Accordingly, the instant application is dismissed. Above are the reason of my short order dated 17.12.2018. SA/O-5/Sindh Application dismissed.